Albany International Corp. (NYSE:AIN) Q4 2025 Earnings Call Transcript

Albany International Corp. (NYSE:AIN) Q4 2025 Earnings Call Transcript February 24, 2026

Albany International Corp. misses on earnings expectations. Reported EPS is $0.4968 EPS, expectations were $0.64.

Operator: Ladies and gentlemen, thank you for standing by. Hello, and welcome to Q4 2025 Albany International Corp. Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our Director of Investor Relations, Karen Blomquist. Please go ahead.

Karen Blomquist: Thank you, operator. Good morning, everyone. Welcome to Albany International’s fourth quarter 2025 earnings conference call. As a reminder for those listening on the call, please refer to our press release issued this morning detailing our quarterly financial results. Contained in the text of the release is a notice regarding our forward-looking statements and the use of certain non-GAAP financial measures and their reconciliations to GAAP. For the purposes of this conference call, those same statements apply to our verbal remarks this morning. Additionally, our remarks today may reference our earnings presentation, which is available on the Investor Relations section of our website, albint.com. Today, we will make statements that are forward-looking and contain a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied.

For a full discussion of these risks and uncertainties, please refer to our earnings release on February 24, 2026. Now, I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks.

Gunnar Kleveland: Thank you, Karen. Good morning, and welcome, everyone. Thank you for joining our fourth quarter earnings call. Before turning to the business update, I want to thank the members of the Albany team who continue to inspire me with their energy and enthusiasm around innovation. This year, we introduced our internal innovation awards program, and in its inaugural year, we received 86 submissions from teams across the company. Awards span technical innovation, operational excellence, and customer service. The strong response reflects the innovative culture we have and continue to build at Albany. Innovation is central to our long-term growth strategy, and we’re proud of this culture. I would like to congratulate all of our award winners and participants this year.

That focus on innovation is directly connected to what makes Albany a differentiated company and underpins our long-term strategy. Albany is built around industrial weaving technology and material science that are deeply embedded in our customers’ products. These capabilities have been developed over decades and are not easily replicated, forming the foundation of our two complementary businesses. Machine Clothing is the backbone of the company, providing stable global platform with strong margins and cash generation. Our products are mission-critical to customers’ operations and enable improvements in productivity, efficiency, and sustainability. Engineered Composites built on the same core strengths and serves as our long-term growth engine.

Through proprietary technologies and advanced materials, we support high-value applications across commercial, aerospace, defense, and emerging platforms, with meaningful opportunities for growth and margin expansion. These emerging markets focus on our 3D weaving, braiding, winding, and resin transfer molding in end markets that include engines, space, missiles, ceramic matrix composites, and titanium replacement. Together, these businesses create a balanced and resilient model that allows us to invest with discipline and adapt to changing market conditions. Over the past 12 months, we have sharpened our strategic focus on high-value applications where we hold clear competitive advantages while exiting non-core activities. As part of that effort, last quarter, we announced the initiation of a strategic review of our Amelia Earhart facility in Salt Lake City.

Since then, we have made substantial progress evaluating a range of options for the site, and we have retained Guggenheim as an advisor to guide us through the process. Taken together, the impact of these actions became evident in the fourth quarter as we delivered our strongest financial performance of the year. We reported total consolidated sales of $321.2 million, up 12% year-over-year, driven by higher sales in our Engineered Composites business, partially offset by softer demand in Machine Clothing, particularly in China. Improved volume translated into stronger profitability with Adjusted EBITDA of $57.3 million, representing 17.8% of sales, compared to $50 million or 17.4% of sales in the year-ago period. Turning to our segments and beginning with Machine Clothing.

Sales were down mid-single digits year-over-year, driven by lower volumes in China and were generally in line with our expectations. Demand conditions remain mixed across regions, with largely stable fourth quarter volume in North America, but some pressure to order rates following consolidation and mill closures. In Europe, overall volume was stable. In Asia, paper overcapacity continued to pressure our segment-level results, as we saw in the third quarter, primarily in China. While we did not see a further deceleration in the fourth quarter. By grade, tissue remains a bright spot globally. This is a market where we are an industry leader and will continue to invest. We also saw pockets of strength in packaging, particularly in Europe. Publication grades continued a secular decline as anticipated, while pulp and engineered fabrics were broadly stable.

Operationally, in January, we experienced an equipment failure on one of our critical machines in North America facility, which will unfavorably impact our first quarter results that we’ll detail in our guidance. Our team was able to bring the machine back online in February, and we expect to recover the lost production through higher output from the site as well as product manufactured at other North American sites. We already had plans to add equipment to permanently de-risk the facility, which is expected to be installed in late 2026. In Engineered Composites, we delivered a strong performance with sales of $143.7 million, compared to $98.8 million in the year ago period. Higher sales were driven by broad-based volume increases across multiple programs.

In particular, the LEAP program, which is the backbone of commercial single-aisle fleets, continues to be a solid program for us, with projected double-digit growth over the next couple of years, based on OEM target production. We expect volume to continue to build as OEMs increase production rate. We also expect incremental contributions from Beta as they progress through the certification process. In defense markets, F-35 remained a strong and stable contributor, while missile programs continued to build volumes. Turning to capital allocation. We generated approximately $81 million of free cash flow in 2025, providing the flexibility to invest in the business, return capital to shareholders, and maintain a strong financial position. We continue to invest with discipline in areas that strengthen our long-term competitive position.

During the year, we invested approximately $72 million in capital expenditures and $48 million in R&D, focused on innovation, advanced manufacturing capabilities, and operational efficiency across both segments. We also remain focused on returning capital to shareholders. Over the course of the year, we returned approximately $218 million through a combination of share repurchases and dividends, including the repurchase of roughly 10% of shares outstanding. This balanced approach allows us to invest for growth, maintain financial flexibility, and consistently create long-term value for shareholders. In 2025, we undertook a deliberate transition of the business with a clear focus on profitability, innovation, and long-term value creation. This marks an important transition for Albany.

And as we enter 2026, we are focused on disciplined execution, continued innovation, and delivering sustainable value for our customers and shareholders. We also completed our corporate relocation to Portsmouth, New Hampshire, which positions us well to attract and retain talent across a broad and highly skilled corridor stretching from Boston to Portland. We’re pleased with the team we have assembled and confident in their ability to lead the company into the next phase of growth. I would like to thank our employees for their dedication and commitment throughout the year, as well as our customers, partners, and shareholders for their continued support. With that, I’ll turn the call over to Will to review the financial results in more detail.

Willard Station: Thank you, Gunnar. Good morning, everyone. Before providing a financial review of the fourth quarter, I’d like to begin with a brief perspective on my first 6 months in the role. The strength of our culture and the depth of the team across the organization have been particularly evident. Further, we operate with world-class manufacturing capabilities, a strong track record of execution in highly demanding industries. These strengths form the foundation of our long-term success and value creation. Over the past six months, we have sharpened our strategy to focus more clearly on our core competitive advantages. That focus is guiding how we operate the business and how we allocate capital with a clear objective of investing where we can generate attractive returns and maximize long-term value for our shareholders.

Operationally, the business performed well across both segments in the fourth quarter, and we followed through on the actions we outlined last quarter. As these actions take hold, we believe Albany will emerge as a stronger company with a more attractive operating profile and a clear platform to drive long-term growth, particularly in high-value and emerging applications. Before turning to the financials for the quarter, I want to note that all the results I will be discussing are non-GAAP, unless otherwise noted, and a full GAAP to non-GAAP reconciliation can be found in our press release issued this morning. Overall, we delivered our strongest financial performance of 2025 in the fourth quarter. Our reported fourth quarter revenue was $321.2 million, up 12% year-over-year, compared to $286.9 million in the same period last year.

The increase was driven primarily by higher volumes in our Engineered Composites business as multiple programs continued to ramp. These increases were partially offset by lower volumes in Machine Clothing, primarily in China. Adjusted EBITDA for the fourth quarter was $57.3 million, compared to $50 million in the year ago period, reflecting an Adjusted EBITDA margin of 17.8%, up from 17.4% last year. The improvement was driven by higher sales and improved margin performance, primarily in Engineered Composites. Moving to our segments and starting with Machine Clothing. Segment revenue was $177.5 million, compared to $188.1 million in the prior year period. The year-over-year decline was driven by continued weakness in Asian markets, particularly China, as well as certain strategic business exits in Europe.

Importantly, revenue was stable sequentially, reflecting quarter-over-quarter stability even in China. All other regions remained largely stable during the quarter. Adjusted EBITDA for Machine Clothing was $48.6 million, compared to $53.7 million in the prior year period, reflecting an Adjusted EBITDA margin of 27.4% compared to 28.5% last year. The decline was driven primarily by lower volumes in Asia and was partially offset by the benefit from efficiencies and integration initiatives. Turning to Engineered Composites segment, revenue was $143.7 million, compared to $98.8 million in the prior year period. The increase was driven by higher volumes across multiple ramping programs, as well as the absence of program adjustments that impacted the prior year.

In the fourth quarter, we also benefited from higher-than-expected material receipts and factory outputs ahead of our plan, which we do not expect to recur in the first quarter. Adjusted EBITDA for the segment was $18.5 million, compared to $6 million last year. The year-over-year improvement reflects the higher revenue base and improved margin performance, primarily driven by program ramps and the absence of program-related impacts in the period. Moving down the income statement, gross profit for the quarter was $99.9 million, compared to $90.3 million in the same period last year, reflecting a gross margin of 31.1% compared to 31.5% in the prior year period. Gross margins declined modestly year-over-year, reflecting lower margins in Machine Clothing due to volume pressure, partially offset by higher margins in Engineered Composites, driven by improved mix and program execution.

Operating income for the quarter was $29.9 million, compared to $24.3 million in the prior year period, representing an operating margin of 9.3% compared to 8.5% last year. The improvement was driven by higher gross profit and leverage on sales volume. Interest expense for the quarter was $5.9 million, compared to $3.9 million in the prior year period, reflecting higher borrowing costs. Other income and expense was a net expense of $900,000, compared to a net benefit of $4.2 million in the year-ago period as a result of foreign currency revaluation impact. In the fourth quarter, our effective tax rate was 39.3%, compared to 28% in the year-ago period. The increase in tax rate was due to expiration of a Foreign Tax Credit and a less favorable discrete tax adjustment compared to the fourth quarter of 2024.

Turning to the cash flow and the balance sheet. We generated free cash flow of $51 million in the quarter, compared to $59.3 million in the same period last year. The year-over-year change mainly reflects higher capital spending this quarter, as well as working capital investments to support several ramping programs. We also continued to return capital to shareholders through both dividends and share repurchases. During the quarter, we repurchased $16.8 million of our common stock and declared a regular quarterly dividend of $0.28 per share. Capital expenditures totaled $22.7 million, up from $19.1 million in the fourth quarter of 2024, with a spending focus primarily on facility optimization and investments tied to key customer programs. R&D expense came in at $12.1 million, underscoring our ongoing commitment to innovation and to advancing proprietary technologies across both Machine Clothing and Engineered Composites.

We ended the quarter with $112.4 million of cash and $456 million of total debt, resulting in net debt of roughly $343 million. Including availability under our revolver, we have over $456.4 million of available capital, which, combined with the strong cash generation of the business, provide ample flexibility and liquidity to support our ongoing investments while continuing to return cash to shareholders. Turning to our outlook, as we continue to progress through our strategic review, we will be providing guidance on a quarterly basis, along with qualitative commentary on the full year. Importantly, our quarterly guidance includes the revenues and associated margins of the Amelia Earhart facility, consistent with how we are currently operating the business.

For the first quarter, we expect consolidated revenue to be in the range of $275 million to $285 million, with Adjusted EPS in the range of $0.50 to $0.60. We also expect our effective tax rate for the quarter to be approximately 27% and for the full year to be approximately 24.3%. We expect our first quarter results to be the lowest of the year as we absorb the costs associated with the downtime in our Machine Clothing facility that Gunnar detailed. The downtime will have a $0.10 to $0.15 impact on EPS in the first quarter. We expect to make up the lost volume over the balance of the year. In Engineered Composites, we anticipate a year-over-year growth on higher overall volume in the first quarter, but at a moderate pace compared to the fourth quarter, as the growth rate in the fourth quarter benefited from several discrete items that are not expected to recur.

Looking to the full year, current visibility supports the following by segment. In Machine Clothing, we are seeing stable demand conditions in Europe and North America, with continued weakness in China. Volumes in China stabilized in the fourth quarter at a lower overall level. We currently expect this run rate to persist through 2026. Consistent with this demand profile, we expect margin levels to remain generally in line with what we saw in the second half of 2025, recognizing that visibility remains limited and market conditions in China continue to evolve. In Engineered Composites, we expect continued growth across key platforms, including LEAP, engine program, and missile applications. Based on the current program ramps, we anticipate strong segment-level growth in 2026, with normalized margin level compared to the prior year.

Now, I would like to open the call up for questions. Operator?

Operator: [Operator Instructions] And we will take our first question from Michael Ciarmoli from Truist Securities.

Q&A Session

Michael Ciarmoli: Maybe, Will, just on those last comments, you gave some sort of, I guess, directional color on 2026. It sounds like maybe this Machine Clothing, you’ve got the weakness that persists in Asia. Just to calibrate us, I mean, should we think about this run rate sort of holding through the year? I guess with AEC, the strong growth, you still have the Salt Lake City in there. Can you give us a sense of what the underlying for AEC revenues and margins look like?

Willard Station: Sure. For Machine Clothing, we fully expect that we’re going to recover from the equipment failure. The equipment has been restored. It’s up and it’s operating, and the team is closely monitoring it to make sure that we don’t have any additional impacts. For Q1, there is the risk of the $0.10 to $0.15, which I outlined in the earnings report, but we’re expecting to recover all of that by the end of the year. Things are starting to look stable, but we are cautious about how much of that we can recover in Q1. As we think about the AEC business, we had a strong quarter, which we’re proud of. We expect that, you know, from an AEV standpoint, we’ve completely resolved the issues around CH-53K. We think we’ve covered that in the [indiscernible] loss that we took in Q3.

And the team is continuing to operate at about a 10% overall margin, which we think we’re going to continue to see for the remainder of 2026. The recovery is looking good within AEC, and we’re expecting to continue those strong margins as we look forward for 2026.

Gunnar Kleveland: I think, Michael, you know, yes. That site continues to grow because of the CH-53K and the Boeing program there. The growth that you’re seeing in the rest of the business is primarily on our missile programs as well as the LEAP. And LEAP is growing significantly both this year and next year.

Michael Ciarmoli: Okay. Yes, I wanted to come to LEAP. Can you give us any sense? I mean, we’ve got, I think, GE calling for 15% increase in deliveries. Are you aligned with production? Is there still some level of destock going on there or any color you could shed on LEAP?

Willard Station: Yes. We’re definitely aligned with production. If you look at, you know, year-over-year, I think our volume is up about 27% on that program, and our factory is fully operating and supporting the ramps that we’re seeing with the OEM. We’re completely aligned there.

Michael Ciarmoli: Okay. Okay. Last one, just housekeeping, Will. The European exits, in Machine Clothing, how much of a drag was that on revenue or will it be on revenue?

Willard Station: I think we spelled some of that out in Q3. I think some of it, as we mentioned in Q3, was intentional. We had some low-margin businesses that we exited out. Some of it was we were optimizing the network, so we’re closing some of the facilities. All of that was part of the synergies with Heimbach, and so it was part of our synergies there, and we’ve executed very well to that plan so far.

Operator: Our next question comes from the line of Ron Epstein from Bank of America.

Ronald Epstein: Gunnar, you mentioned CMCs. What are you guys doing in CMCs? That’s the first time at least I’ve heard you talk about it. What are you doing there? And where do you think that can go?

Gunnar Kleveland: We have been investing in high-temperature composites using our proprietary 3D weaving and then carbonizing those near-net shape parts. We’ve been working with several OEMs. We are going to be announcing more about this, here in Rochester, we have now the full capability to make carbon-carbon and various ceramic matrix composites. I expect that to be a strong growth engine for us on R&D in the short term and as part of our production in the short to medium term, definitely in the longer term. Lots of investment there, anywhere from large acreage hypersonic missiles to nozzles and exhausts on traditional missiles. Lots of opportunity happening.

Ronald Epstein: When you do like carbon-carbon near-net shape parts, does that mean that they just have to be machined less than like otherwise, it to just get a block of carbon-carbon?

Gunnar Kleveland: That is exactly it. Because of our ability to weave a near-net shape, we can also carbonize and finalize a part that is near-net shape, which prevents the machining, to your point. And that is exactly it. We’ve worked with this. We have to set up a very large looms in our facility, and we’re creating parts and working with customers on this. The benefit, of course, with our parts is that you do not have to machine away very expensive carbon.

Ronald Epstein: Yes. Interesting. Yes, then if I can, maybe just one more. Is there anything else you can say or give us detail on the reorg and, or what’s going on in Salt Lake, with that facility?

Gunnar Kleveland: Yes. So first of all, we are operating the facility at the level that is expected from all of our customers. The site is performing well. We’re tightly aligned with especially with Sikorsky, to make sure that we’re delivering to them. We’ve started the process. As we have mentioned before, there’s been a lot of interest in the site. Now I can share that it’s both from private equity as well as strategics. It is clear that our capacity in autoclave at that site is very attractive. It is not where we want to grow, but it is attractive and we think we will be able to go through this process, you know. Well, the process will take what it takes. We’re well on our way. We’ll be announcing more throughout the spring.

Operator: Our next question comes from the line of Steve Tusa from JPMorgan.

Chigusa Katoku: This is Chigusa on for Steve. It’s really nice to see a quarter with no charges, and it’s good to hear that you think you completely resolved the CH-53K issues with the $147 recorded last quarter. I just wanted to better understand. How comfortable are you that going forward, we’ll continue to see quarters like this, where you won’t see any negative EAC charges?

Gunnar Kleveland: It’s a good point. We took a large charge, and we did that to de-risk the program. We’re seeing the performance at the expectations that we set. We, as we talked about last quarterly call, we also removed one of the programs with Gulfstream from our portfolio. The remaining programs are performing very well. There are give-and-takes in EACs, as you know, we do not expect to have any large charges as we continue through the year.

Chigusa Katoku: I think, so free of charges, your underlying margins for AEC is at 13% this quarter, is this a reasonable margin run rate for this business when thinking about 2026?

Willard Station: I think so. I think that’s right in the range, we have seen these last couple of quarters. We expect to be there until we complete the strategic review of Salt Lake. I think that’s in line with what we’re expecting to see.

Chigusa Katoku: Okay, great. Just a quick follow-up on that. You mentioned that the Amelia Earhart Facility is about 10% margins, but is the CH-53K in particular, call it, about 20% of your AEC business, making losses in the rest of the AEC business in the mid-to-high teens range? Is that kind of the right way to think about it?

Willard Station: Yes. Well, one thing I will correct, with the charge we took in Q3, we won’t see CH-53K having losses going forward. We, we’ve covered that in Q3. As you think about the remaining parts of the business, you know, our goal is to get it to the mid to low teens. That’s what we are aiming for, clearly, we have to resolve the strategic review and divest of the site before we can, we can get there. We have some work to do before we can make that happen, but you’re thinking about it the right way.

Operator: There are no more further questions. I will now turn the call back over to our President and CEO, Gunnar Kleveland, for closing remarks.

Gunnar Kleveland: Thank you, Dustin, and thank you, everyone, for joining us on the call today. We appreciate your continued interest in Albany International. Thank you. Have a good day.

Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.